The reasons for the shortage of funds can be divided into two groups: internal and external. Internal reasons include those that originated in the enterprise itself and are due to its specifics. The external causes of the shortage of funds do not depend on the enterprise. There are two main ways to overcome the lack of funds: increasing the inflow and reducing the outflow of funds. The most common internal reasons for cash deficit include the following: the loss of one or more large buyers of the company’s products, which caused a noticeable decrease in sales volumes and deficiencies in planning and managing the company’s product range.
The leading external cause of the cash deficit is fierce competition from other manufacturers of similar products. These three named circumstances can be considered the three most compelling reasons for the company’s decrease in cash.
The purpose of the analysis of cash flows is, first of all, the analysis of the financial stability and the enterprise’s profitability. Its starting point is the calculation of cash flows, primarily from operating activities. The economic well-being of an enterprise largely depends on the flow of funds to cover its obligations (Clarke). Lack of the minimum required supply of funds may indicate financial difficulties.
Out of four years of Aston Martin’s activity, the situation continued for three years when the “change in cash” indicators took a negative value. This means that there was a leak of funds, and costs exceeded revenue. Such a process is a red signal for potential investors about the danger of investing in such an organization. There is a significant difference between the performance of BMW and Aston Martin. In 20X4 BMW, this figure was 1.98; Aston Martin’s figure was minus 25.90.
Total equity demonstrates how financially stable the company is. Over four years, it has been observed that this indicator is consistently low. To increase it, the company will need to attract additional investments or take other measures to improve its activities (increase net profit). For comparison, the exact figure is 50 times higher for BMW. In addition, the analyzed company has shallow non-current assets, designed to demonstrate assets that are not easy to convert into cash. Their small number also affects the economic stability of the company. When there are few of them, the company cannot function effectively.
To improve this aspect, the same techniques will help as in the previous case; it is required to look for external sources of financing and create good-selling quality products to increase profits. For comparison, the exact figure for BMW is about 190 times higher. Moreover, there is a stable growth of this indicator: in 20X1, it was equal to 172.17, and already in 20X4, it grew to 208.98. In addition, due to the analysis, it becomes clear that the most severe financial losses for Aston Martin are due to its investment activities. Accordingly, this expense item should be reduced, or the potential payback of the planned projects should be carefully evaluated.
Companies incur enormous direct and hidden costs when entire departments focus on areas not aligned with the company’s strategy. This judgment applies to Aston Martin; it would avoid the financial crisis if it invested more wisely. In addition, reducing excess inventory costs is one of the simplest changes a company can make to improve its performance immediately. Aston Martin should use the experience of a more successful company, for example, BMW, to function more efficiently.
Works Cited
Clarke, Dave. What is Cash Flow and Why is it so Important? Kashoo, 2021. Web.